Twitter takes Elon Musk to court over failed acquisition

Note: This was originally published as the daily newsletter for the Columbia Journalism Review, where I am the chief digital writer

On May 13, a month to the day after Elon Musk filed a notice with the Securities and Exchange Commission saying he intended to acquire Twitter for $44 billion, Musk announced that the deal was on hold, “pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users.” At the time, some observers said they saw Musk’s concern as an excuse to either back out of the takeover deal or negotiate a lower price, since the value of Twitter’s stock had already fallen by more than 30 percent between when he announced his acquisition plan and when he put the deal “on hold.” On Friday, Musk filed a new statement with securities regulators saying the offer had been terminated because Twitter was “in material breach of multiple provisions of [the purchase agreement,] including making what Musk alleges were “false and misleading representations” about the state of Twitter’s business. The termination notice also states that Musk believes Twitter could suffer a “material adverse effect” on its business because of its under-counting of spam accounts.

On Tuesday, Twitter fired off its own salvo in the ongoing battle over the company’s future: a lawsuit in the Chancery Court of Delaware, where the company is registered, aimed at getting Musk to follow through on his offer. In the complaint, Twitter alleges that Musk “refuses to honor his obligations to Twitter and its stockholders because the deal he signed no longer serves his personal interests.” Despite a legal commitment to buy the company, Twitter says Musk “apparently believes that he—unlike every other party subject to Delaware contract law—is free to change his mind, trash the company, disrupt its operations, destroy stockholder value, and walk away.” The Twitter lawsuit doesn’t pull any punches when it comes to Musk’s behavior: among other things, it says his attempt to get out of the deal is “a model of hypocrisy,” because he said one reason he wanted to buy the company was to get rid of spam, but then suggested in his termination notice that the amount of spam was the reason he was cancelling the deal.

“When the market declined and the fixed-price deal became less attractive, the lawsuit states, “Musk shifted his narrative, suddenly demanding ‘verification’ that spam was not a serious problem on Twitter’s platform, and claiming a burning need to conduct ‘diligence’ he had expressly forsworn.” The claims that Musk makes in his termination notice, about Twitter allegedly misrepresenting the state of its business, “are pretexts and lack any merit,” the company’s lawsuit adds. Twitter also accuses Musk of breaching the merger agreement repeatedly, alleging that he has “purported to put the deal on ‘hold’ pending satisfaction of imaginary conditions, breached his financing efforts obligations in the process, violated his obligations to treat requests for consent reasonably and to provide information about financing status, violated his non-disparagement obligation, [and] misused confidential information” provided by Twitter.

In what may be a first for a legal action in Delaware’s Chancery Court, the 62-page Twitter lawsuit also includes a number of tweets from Musk as evidence that he disparaged the company, such as a notorious response to Parag Agrawal, Twitter’s CEO, that contained nothing but a single “poop” emoji, after Agrawal described how the company assesses spam accounts. While Musk was engaging in this kind of behavior, Twitter says that it “continued to respond cooperatively to his representatives’ increasingly unreasonable inquiries,” such as a demand for access to the Twitter “firehose,” a complete feed of the millions of tweets posted to the service every day. While Musk claims in his termination notice that he couldn’t get any useful information from the company about how it calculated spam accounts, Twitter says in its filing that it provided Musk with large quantities of data to that effect, and also that it organized further information sessions which he and his representatives never attended.

As with most takeover and merger offers, Twitter’s deal with Musk included a “breakup fee,” which he would have to pay in the event that the deal fell apart, which in this case was set at $1 billion. But the company isn’t asking the Delaware Chancery Court to enforce this fee; instead, it is asking the court to force Musk to fulfill all of his obligations under the merger agreement—in other words, to force him to acquire the company for $44 billion. According to MSNBC, there is no precedent in which a judge has forced an acquirer to go through with a takeover that large, but there is at least one case where Delaware’s Chancery Court forced a company to close a deal after it tried to back out: Tyson Foods tried to back out of an agreeement to buy IBP after the company’s finances declined, but the Chancery Court forced it to go forward with the arrangement. One critical part of the case, legal observers say, is whether Musk can successfully prove that Twitter is likely to suffer a “material adverse effect” from its behavior.

One thing that makes the Twitter lawsuit different from other suits is that decisions in Delaware’s Chancery Court (and other similar courts in Michigan and New York) are made based on what is “equitable” rather than on a narrow interpretation of common law, giving the court much more flexibility when it comes to remedies. Matt Levine of Bloomberg argues that the court could decide that forcing Musk to follow through on his deal is the equitable thing to do, although he adds that “it is a somewhat drastic remedy, forcing an unwilling buyer to pay $44 billion for a company that he doesn’t want.” Which raises a question many have asked in the wake of Musk’s termination notice: does Twitter really want to be acquired by someone who has done so much to disparage the company, and clearly isn’t interested in running it?

Evan Williams, Twitter’s co-founder and former CEO, suggested that the company’s board is merely doing its fiduciary duty to shareholders by trying to complete the agreement, and Levine agreed. “The shareholders definitely want their $54.20 [per share] rather than nothing, and the board really does have to try hard to get it for them,” he wrote. “Also it is bad to let Musk go around destroying public companies on a whim without any consequences; Twitter’s board has sort of a public-service obligation to try to make him pay.” That said, Levine and others argue that the most likely outcome is that Musk and Twitter agree to dissolve the agreement after Musk pays a penalty, probably significantly more than the $1 billion breakup fee included in the offer. Will he do so? As with so many other things that involve Musk, the answer to that is anyone’s guess.

Here’s more on Musk and Twitter:

Worse off: Musk’s on-again, off-again attempts to acquire Twitter have damaged the company and left it worse off than it was before he launched his takeover bid, Kate Conger and Mike Isaac write in the New York Times. Musk “is inexorably leaving Twitter worse off than it was when he said he would buy it,” the two write. “With each needling tweet and public taunt, Mr. Musk has eroded trust in the social media company, walloped employee morale, spooked potential advertisers, emphasized its financial difficulties and spread misinformation about how Twitter operates.”

What now? If Twitter’s lawsuit succeeds, and Musk refuses to comply with a court order, Reuters looked at what might happen. “Delaware is also a popular incorporation destination for most U.S. public companies, including Tesla Inc and other Musk companies such as tunneling venture the Boring Co and Space Exploration Technologies Corp, known as SpaceX,” the financial news service reported. “That gives the court jurisdiction over a vast amount of Musk assets to coerce compliance if needed. Lawyers said the court would begin by holding Musk in contempt and issuing fines until he did as ordered.” Minor Myers, a professor of at the University of Connecticut School of Law, told Reuters Musk would be “treated like a deadbeat dad not paying child support.”

Making it up: Last month, Musk told a Financial Times conference that while he is in favor of free speech, he also thought blocking tweets with objectionable content might be required if a given user says “something that is illegal or otherwise just, you know, destructive.” Gilad Edelman, wrote in Wired that “the most likely explanation for Musk’s conflicting statements is that he’s simply making this up as he goes and has not given any serious thought to how content rules should work on the social platform that he’s trying to spend $44 billion to buy.” Previously, Musk said he “doesn’t care about the economics” of the deal, and also told a friend that he “had no plan for how to finance or manage Twitter,” according to a report from the New York Times.

Tesla cash: If Musk does have to pay a settlement fee of some kind for terminating his offer to buy Twitter, he could pay for it out of the estimated $8 billion he made selling shares of Tesla, the electric vehicle company he owns, as part of the financing for the Twitter deal. Musk was able to sell the stock near its peak in value of about $1, 100 per share. The share price has since fallen by about 35 percent, in part because investors seemed concerned about him pledging Tesla stock as part of the funding for the Twitter acquisition, but also because of fears about a decline in the global economy. Musk still owns about 175 million shares of Tesla, worth about $122 billion at current prices.

Other notable stories:

Evgeny Prigozhin, a Russian oligarch linked to the Kremlin, has asked Russia’s top investigative body to launch a criminal case against Tatiana Ershova, editorial director of the news site Meduza, and Liliya Yapparova, a special correspondent for the site, Meduza reported. “In a statement released on Wednesday, the press office for Prigozhin’s company Concord said that the oligarch had asked Investigative Committee Chief Alexander Bastrykin to initiate a felony investigation against Ershova and Yapparova on charges of spreading ‘false information’ about the Russian army and treason,” Meduza wrote. Michael Nacke, a popular YouTube personality based in Lithuania, said he discovered in May that he had also been charged with disseminating false information about the country’s “special military operation” in Ukraine, Bloomberg reported.

Laura Hazard Owen, writing for the Nieman Journalism Lab, says horrific abortion stories are going to become more common, and telling those stories may require some change by news organizations. “Reporters who want to tell these stories—and the news organizations they work for—may have to abandon some conventional journalism wisdom,” Owens wrote. A recent Indianapolis Star story about a 10-year-old rape victim who had to travel out of state to get an abortion was called a hoax by a number of right-wing outlets and commentators, and both the Wall Street Journal and Washington Post were skeptical because the story only quoted one source (the doctor who treated the girl). The story turned out to be accurate. “In America after the end of Roe v. Wade, one brave source on the record in the final story will often be the best we can get,” Owen wrote.

A fake news site pretended to be a blog by Aluf Benn, chief editor of Haaretz, and spread false stories—including the claim that an Israeli diplomat met with the president of Yemen, according to a report from Haaretz. “The website, which is in English, looks like an inconspicuous blog and includes an organized archive with the full text of hundreds of real columns written by Benn for Haaretz over the past decade,” the paper reported. “However, among the real articles taken in their entirety from the Haaretz.com English-language website, three fake articles appear under Benn’s name. The bogus articles appeared to be designed to escalate tensions in the region.”

In a settlement announced by the Department of Justice on Tuesday, Meta—the parent company of Facebook—agreed to eliminate features in its advertising business that allowed landlords, employers, and credit agencies to discriminate against groups of people protected by federal civil rights laws, Politico reported. The deal comes nearly six years after ProPublica first revealed that Facebook let housing marketers exclude African Americans and others from seeing some of their advertisements.

The Gambia Press Union issued a press statement condemning the arbitrary arrest of journalist Yusef Taylor, also known as ‘Flex Dan,’ according to a report from the news site Foroyaa. “The GPU said they received official reports that on the 5th of July 2022, Yusef Taylor, a journalist who is also the Editor-in-Chief of Gainako, an online newspaper, was arbitrarily arrested and reportedly charged with ‘obstructing a police officer in the execution of his duty,'” the site reported. The GPU said Taylor was detained at the Senegambia Police Station for four hours after attempting to report on the arrest of two members of a global charity group.

Rest of World reported that more than one million bots have flooded the Instagram accounts of prominent Iranian feminist activists in a coordinated harassment campaign that started in mid-April, according to a new report released by Qurium, a digital forensics nonprofit. “Instagram is the only major global social media platform that can currently be accessed from Iran without a VPN, making it difficult for activists to migrate their followings to other social media platforms,” Rest of World reported. “As a result, it has become a hub for dissidents and activists,” including many in the burgeoning #MeToo movement in that country, who are the target of many of the attacks.

Amanda Ripley, a podcast host and journalist, wrote in an opinion piece for the Washington Post that she has stopped reading the news. “Is the problem me, or the product?” she asked. “I kept it hidden for longer than I care to admit. It felt unprofessional, vaguely shameful. It wasn’t who I wanted to be. But I’ve been actively avoiding the news for years.” Ripley added that a number of journalist friends said they had also been avoiding the news, and “that gets to the heart of the problem here: If so many of us feel poisoned by our products, might there be something wrong with them?” The Reuters Institute recently reported that about 4 out of 10 Americans avoid contact with the news.

Journalists in the US have a different opinion of “bothsides-ism” in the media—the idea that reporters should always give time to both sides of an issue—than the general public, according to a recent Pew Research Center study. “A little more than half of the journalists surveyed (55 percent) say that every side does not always deserve equal coverage in the news,” the center reported. “By contrast, 22 percent of Americans overall say the same, whereas about three-quarters (76 percent) say journalists should always strive to give all sides equal coverage.” Younger journalists and those who say their outlet has a left-leaning audience were most likely to say that equal coverage is not always merited.

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